Shannon O'Reilly is trying to decide whether to continue to take public transportation to
work or to purchase a car. Before making her decision, she would like to compare the
cost of using public transportation and the cost of driving a car. What activity measure
should Shannon use as she estimates the cost of driving? What should Shannon view as
incremental (variable or out of pocket)costs of driving from home to work? What are
some fixed costs of driving a car? Suppose that if Shannon purchased a car, she would
use it to estimate her vacation and lodging expenses?
(a)
The number of miles driven is an important activity measure in estimating
the cost of driving. In comparing the cost of driving to work or taking
public transportation, Shannon may also want to consider the cost of
parking at work. The cost of parking may vary with the number of days
at work or may be a flat rate per month.
(b) Incremental costs of driving include gas, oil, maintenance, and tire
expenditures.
(c) Some capacity-related costs are taxes, depreciation, car registration, and
insurance.
(d) For a two-week vacation by car, two likely activity measures are number
of miles driven and number of days (for lodging and meals).